How quickly fortunes change. Analysts are adjusting their previous estimates for the large-screen LCD panel market and Blu-ray players downward as the economy continues to sour.
Earlier this year, LCD panel makers could not meet demand and were running at 100 percent capacity. Now, Taiwanese tech publication DigiTimes reports that production could be cut by as much as 20 to 30 percent in the fourth quarter of this year and into the first quarter of next year.
Meanwhile, digital technology research firm Parks Associates is lowering its Blu-ray DVD sales projections by 25 percent for the next few quarters. However, Kurt Scherf, principal analyst with Parks, said the firm is sticking by its long-term projections that annual Blu-ray player unit sales would jump to about 40 million by 2012.
Van Baker, a research analyst with Gartner, said he’s not surprised at the decline. “The cutback on LCD is no surprise, because an awful lot of that goes into TVs, and TVs are going to get slammed this Christmas,” he said.
Other industry watchers concur. Scherf said he’d heard that consumer electronics sales in September were off by 14 percent, while Dean McCarron of Mercury Research said he understood sales were off 30 percent. NPD Group, which follows the consumer electronics market, will release its own report on September sales on Thursday.
“We’ve already seen a lot of people buy into the HDTV market at the high end and we’re moving down market,” Baker said. “That market has less HDTV penetration but they are less likely to have disposable income to afford one.”
Scherf said Blu-ray’s enemy is not the cost of players — a complaint common in the past that fell off once players dropped to $200. Nor is it competition from Video On Demand (VOD) services. “VOD is getting close [in quality], but it’s in a later window than the home video release, so for your true moviephile who wants that title when it comes out and in the highest-quality format, Blu-ray is the option,” he told InternetNews.com.
The problem is the cost of Blu-ray movies. Blu-ray requires whole new production lines, whereas HD DVD, the high-def format that Blu-ray vanquished, could be made on old DVD production lines. The studios typically pass the extra cost of Blu-ray production onto consumers, with the result that Blu-ray movies cost much more than regular DVDs.
Making matters worse, consumers are not interested in replacing their libraries again.
“I think content producers have done a great job over the course of years of convincing us to convert from one format to another, and I suspect we are reaching the end of our willingness to do wholesale replacements of our media collection,” Scherf said.
McCarron also backed up Apple CEO Steve Jobs’s previous comment that Blu-ray for computers is “a bag of hurt.” A Blu-ray drive in a laptop is $150, whereas a standard DVD is $20, and the license agreement between PC OEMs and Sony, the lead developer of Blu-ray, only adds to the pain.
“Prices are so excessive and licensing burdens are so onerous,” McCarron said. “What it comes down to is the motion picture industry is paranoid about piracy to a degree they are creating a barrier of entry so high they are creating a disincentive for PC guys.”
Shattered glass
On the LCD front, the reversal from a shortage to an oversupply in less than a year is remarkable. McCarron thinks the DigiTimes report was overstating the size of the cut, and that the actual reduction would be around 10 to 15 percent.
Even if the economy were strong, first-quarter LCD sales would naturally fall off by five percent, he added.
The one area of strength for LCD sales is the mobile market, which was up 25 percent during third quarter. Mobile computer sales exceeded desktop sales in third quarter. IDC had been projecting mobile to surpass desktop in 2009, but it came even earlier.
However, half of that is coming from netbooks — the low-cost, lightweight and low-powered notebooks popularized by vendors like Asus — that use seven- to 10-inch LCD panels. That’s a lot less glass than a 24-inch LCD desktop PC monitor requires, so overall production needs to be reduced.
Meanwhile, desktop PC sales are “dead in the water,” according to McCarron, with the result being a decline in panels 17 inches and larger.
“I haven’t seen growth rates like we’re seeing in notebooks for 10 years,” McCarron said. “It used to be the PC market would grow in the 20-to-30 percent range in the ’90s, but that went away for the past 10 years. Now we’re seeing growth rates like that just for notebook PCs. The only growth in the PC market is happening in notebooks.”
Baker said corporate buying is also coming to a screeching halt, hurting LCD sales. “Companies are cutting back on new spending, looking to see if there are projects they can delay or postpone. Any significant reduction in notebook sales will have an impact on these guys as well,” he said.
